Does TRX Gold (TSE:TRX) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies TRX Gold Corporation (TSE:TRX) makes use of debt. But should shareholders be worried about its use of debt?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is TRX Gold's Debt?

You can click the graphic below for the historical numbers, but it shows that as of May 2025 TRX Gold had US$2.98m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$6.54m in cash, so it actually has US$3.56m net cash.

How Strong Is TRX Gold's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TRX Gold had liabilities of US$28.1m due within 12 months and liabilities of US$15.2m due beyond that. Offsetting these obligations, it had cash of US$6.54m as well as receivables valued at US$2.69m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$34.1m.

Since publicly traded TRX Gold shares are worth a total of US$178.3m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, TRX Gold also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for TRX Gold

Importantly, TRX Gold grew its EBIT by 59% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if TRX Gold can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While TRX Gold has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, TRX Gold basically broke even on a free cash flow basis. Some might say that's a concern, when it comes considering how easily it would be for it to down debt.

Summing Up

While TRX Gold does have more liabilities than liquid assets, it also has net cash of US$3.56m. And it impressed us with its EBIT growth of 59% over the last year. So we are not troubled with TRX Gold's debt use. We'd be motivated to research the stock further if we found out that TRX Gold insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.